Amazon’s purchase of Whole Foods Market

Amazon announced on 16 June that it is going to acquire Whole Foods Market (WFM) in an all-cash transaction valued at approximately US$13.7 billion. This deal will give the company a significant physical presence of more than 460 supermarkets. The deal shows that Amazon thinks that the future of retail is a mix of both online and brick-and-mortar stores.

Amazon has been trying to enter physical retail business for quite a long period, is seeking to expand its brick-and-mortar bookstores and is experimenting with various technologies incorporated in Amazon Go stores. It has been selling groceries online for a long period of time but not with major success, and this with this deal the company may be trying to fix that. Groceries are something which people purchase regularly, and with a purchase of a big grocery retailer, Amazon wants to insert itself into the lives of its customers a bit further.

Amazon in future may try to put the inventory of WFM online through its e-commerce portal and deliver the products directly from its physical stores which will surely reduce delivery time. Maybe, someday delivery of products purchased online will take same amount of time in which a pizza is delivered. This deal is not going to increase Amazon’s customer base significantly, but will allow the use of the supply chain of WFM.

Amazon may try to use its Prime memberships, to give its customers in Whole Foods Market some extra discounts while increasing its memberships. It may use WFM supermarkets as a delivery point or for picking up returns of the products purchased online. From the very beginning, Amazon has been very conservative about pricing whereas, WFM’s products are considered expensive so, we may see Amazon use its technologies to make the supermarket’s operations more efficient in order to reduce the prices of the products on it’s shelves. Amazon has so far denied of any plans to cut employee numbers due to automation.

Amazon is not the only e-commerce company trying to enter the physical retail business. Last year, Alibaba group of China purchased shares in supermarket chain Sanjiang Shopping and, in this year it acquired shares in another supermarket chain Lianhua Supermarket Holdings Co Ltd.

Amazon also faces heat at its home nation from its biggest arch-rival Walmart, which is trying to establish itself in online retail desperately. Last year, Walmart acquired Jet.com for US$3.3 billion. Jet.com was founded by Marc Lore who previously sold his company to Amazon for US$545 million, after that he worked at Amazon for over two years. Now, Marc is CEO of Walmart eCommerce US.

Now it’s Amazon’s turn to tell Walmart that they are ready for the battle long awaited. Though WFM store count is one-tenth of that of Walmart, now equipped with deep pockets of Amazon it may very well go on a spree of opening new supermarkets.

About Whole Foods Market

Whole Foods Market founded in 1978, is natural and organic foods supermarket, the first US “Certified Organic” grocer. In the financial year 2016, the Company had sales of approximately US$16 billion and has more than 460 stores in the United States, Canada, and the United Kingdom. Whole Foods Market employs approximately 87,000 team members and has been ranked for 20 consecutive years as one of the “100 Best Companies to Work For” in America by Fortune magazine.

About Amazon

Amazon founded in 1994, by Jeff Bezos is an e-commerce and web-services company. It is the world’s largest Internet company according to revenues and fourth largest in market capitalization. It had a revenue of US$134.98 billion in the financial year 2016. Amazon is present in 14 different countries itself, and in many others through its subsidiaries. It is the eighth largest employer in the US. Amazon has been working on some unique concepts like use of delivery drones, Artificial Intelligence, robots, etc. for its operations.